Local Facilities and PRIIPs KIDs II. The Offer of AIFs to German Semi Professional Investors.
In continental Europe there is a growing number of progressive domiciles where local regimes make it possible, subject to compliance with certain requirements, to offer AIFs to client categories other than professional investors. And here we are not referring to ELTIFs, which, as many may know already, are born with the retail investor in mind. We are mostly talking about traditional AIFs, conceived originally for professional investors.
We recently looked at Italy, where a recent reform opened investments into AIFs to a new category of Italian semi professional investors. These are the white-collar Italian qualified retail investors, now allowed to invest in European AIFs, subject to specific thresholds for initial investments as well as a certain size of existing portfolios.
But Italy is not the only European domicile where AIFs can be offered to clients other than professional investors. Germany also has a long-standing tradition in allowing AIFs to be offered to a specific category of investors. These are defined German semi professional investors.
Get in touch here with your contacts at Veneziano & Partners to see how we can help with German Semi Professional Investors.
Examples of German Semi Professional Investors
Before looking at the requirements of a German semi professional investor, it is appropriate to look at what the AIFMD says in terms of the ability for AIFs to be offered to investors other than professionals. As we know, even in its second iteration, AIFMD remains a regime mostly for professional investors. Article 43 AIFMD, however, leaves the choice open for member states individually to allow for marketing of certain types of AIFs – whether European or not – to non professional investors. Germany opted in, allowing that retail investors could invest both in European and non-European AIFs.
The requirements applicable to the category of German semi professional investors are governed by the Capital Investment Code (KAGB). Similar to other regimes, in Germany the size of the investment will largely dictate whether an investor will fall under this type of category or not. By way of example, anyone investing at least ten million Euros is considered to fall under this category. However, you can also be considered a German semi professional investor if your ticket is much smaller, like two hundred thousand Euros. In that case though, there are declarations to be made by the investor as well as a suitability assessment to be carried out by either the AIFM or any other entity appointed by it for distribution purposes. Lastly, there are also other types of investors that fall under this category irrespective of the size of their investment.
Of course, you’d love to know that one of the most sought after type of investors in Germany – the family offices – will most likely be considered as semi professional investors.
Local Facilities and PRIIPs KIDs
Will a PRIIPs KIDs be required in case of AIFs offered to German semi professional investor? The answer to this question is easy. The case of these additional client categories was dealt already in one of the Q&A on PRIIPs KIDs. Here, we find an acknowledgement of the fact that a growing number of European member states have introduced further client categories in addition to the main ones (professional and retail) provided for by MiFID. These new categories – like qualifying, informed or semi professional – indeed share some but not all elements of the MiFID definition of professional client. Yet the verdict was that, irrespective of any additional categorization provided for by applicable national laws, the obligation to provide a PRIIPs KID extends to all investors that do not meet the criteria of professional client under MiFID.
For what concerns the requirement to offer local facilities, at least in Germany, the applicability of the requirement in case of offer to semi professional investor is not as apparent as it is in the corresponding Italian regime. This said, the argument made for the PRIIPs KIDs seems to fit quite nicely also for the local facilities. Semi professional investors are an additional category to the professional investors. Accordingly, the ability to offer certain AIFs to semi professional investors falls under the broader right of European Member States to opt in under AIFMD article 43 and open the offer of AIFs to retail investors in their domiciles. And where the offer of AIFs to retail investors in Germany requires that local facilities are provided, the same should be the case for the offer to semi professional investors. On the particular point of the local facilities, BaFIN also clarified that these can be offered in digital fashion, also by more than one agent and also can be restricted to certain tasks identified in the related list under the Crossborder Distribution Directive. That would allow for a licensed entity, for instance, to deal with subscriptions and redemptions, whilst the rest of tasks can be performed by an unlicensed digital facilities agent.
As mentioned, Germany opted in for allowing marketing of certain AIFs, including non European AIFs, to retail investors. The related notification process is indeed heavily gold-plated. That is both because of the German language for the application, required in case of non European AIFs, as well as for the appointment of the so-called depositary lite. And where American fund managers are well conversant with the process, UK managers will have to increasingly get used to it as they want to continue to present their investment opportunities to family offices in Germany.
Get in touch here with your contacts at Veneziano & Partners to see how we can help with German Semi-Professional Investors.